BP plc (ADR) (BP): The Company’s Recent Sale Shows Little Confidence in Renewable Energy

It wasn’t that long ago that BP plc (ADR) (NYSE:BP) was said to be ushering in a new kind of energy company. It was creating a diversified giant focused on both fossil fuels and renewables. Fast forward a couple years and now BP plc (ADR) (NYSE:BP) is completely exiting the renewable energy sector.

BP To Pay Massive Fine, More To Come

In a continuation of its recent asset sales, BP plc (ADR) (NYSE:BP) announced that it is putting its wind business on the auction block. The sale includes 16 operating wind farms with total capacity of about 2,600 megawatts. The company hopes the sale will generate $3.1 billion which it can use to reinvest in high-margin oil and gas projects. This sale comes on the heels of exiting its solar business in December 2011 and reverses what had been a creative plan to build a diversified energy company.

The shale oil boom in the U.S. along with a worldwide reduction in renewable subsidies has really clouded that industry’s future. Given limited visibility for wind beyond 2014, when current U.S. tax credits expire, it makes sense for the company to exit the business ahead of that time.

Despite those headwinds, the wind business had been growing briskly — last year, BP plc (ADR) (NYSE:BP)’s capacity grew 50%. The company feels that it is simply prudent to unlock the value of its wind assets now given that it could never build enough scale to really move the needle.

For the right owner, wind assets represent a solid path to investor returns. NextEra Energy, Inc. (NYSE:NEE), for example, just installed its 10,000th megawatt of wind-generating capacity. Its wind business has really been a driving force in propelling its shares higher in recent years.

That’s why it wouldn’t surprise me if NextEra Energy, Inc. (NYSE:NEE) or even Exelon Corporation (NYSE:EXC) emerge as the winning bidder for BP plc (ADR) (NYSE:BP)’s wind assets. Exelon Corporation (NYSE:EXC) is very reliant on nuclear power and recently cut its dividend because the company is not generating a high enough return to support it. The other factor behind the cut is that the company wanted to maintain its investment-grade credit rating so that it could participate in attractive opportunities. The BP assets certainly represent a compelling opportunity given size of the generating portfolio.

That being said, BP plc (ADR) (NYSE:BP)’s proposed sale of its wind assets shows that it has little confidence in renewable energy. The company can generate much higher returns from fossil fuels and it needs all the returns it can muster after forking over billions of dollars to pay for the Gulf of Mexico disaster. Given the company’s strategy to generate 50% more annual cash flow by 2014, it make sense to part with an asset that no longer had the potential to develop into a core business for the company.

The article BP’s Recent Sale Shows Little Confidence in Renewable Energy originally appeared on Fool.com.

Fool contributor Matt DiLallo is short Apr 2013 $35 puts on Exelon. The Motley Fool recommends Exelon.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!